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Ohio Cultural Facilities Commission National Underground Railroad Freedom Center1st Quarter 2011 Meeting Page 2 of 12

government will establish a federal museum and an oversight commission to

commemorate the ending of chattel slavery in the United States. A discussiondraft of this legislation was completed in October 2009. Preliminary terms includegifting the facility to the United States government and the United Statesgovernment, via an appointed board of trustees, operating the facility incooperation with the Secretary of the Interior and other federal agencies. Thefederal legislation has not been approved, but the Freedom Center anticipates itwill be approved in 2011.

Subsequent to the February 2010 Commission approval of the MOU, theFreedom Center has eliminated its debt, developed alternate plans for continuingits operations, and has offered to provide a guaranty to secure the $850Kappropriation. Commission staff recommends approval of the $850Kappropriation, contingent on the Sponsor providing a guaranty for the $850K anda business plan outlining operational contingencies in the event federalization isdelayed.

Facility Overview: The Center consists of a 160,000-square-foot facility located on the Cincinnatiriverfront that opened in 2004. Features of the facility include a museum,interactive story theaters, computer networking to other Underground Railroadsites, arts and education facilities, and a public forum space.

The Center is currently owned and operated by the Sponsor, an Ohio nonprofitcorporation since 1995.

Culture Presented: The preservation and presentation of features of historical interest or significance.

SponsorBackground: The Sponsor states, The mission of the National Underground Railroad

Freedom Center is to reveal stories about freedom's heroes, from the era of theUnderground Railroad to contemporary times, challenging and inspiring everyone

to take courageous steps for freedom today.

Project Information

Scope: The current appropriation will reimburse the Sponsor for construction expensespreviously incurred but not yet reimbursed (the Project). The Project consists ofreimbursing $850,000 on an appropriation awarded in H.B. 562. In addition, theSponsor is requesting return of the $462K in escrowed funds, in exchange for aguaranty in an equal amount.

Regional Support

Matching ResourcesThe Sponsor demonstrated a minimum of non-state matching resources equal to at least 50 percent of

the total state funding of $15,500,000 (a minimum of $7,750,000). Matching resources weresubstantiated in November 2008. On October 9, 2001, Substantial Regional Support was confirmed bythe Commission in resolution R-01-26. The following table is provided for informational purposes.

Comment [dpw4]: If the Commission mfinding in 2001, the substantiation/verificati

2008 should follow the discussion of the origfinding. Given that it happened well after thCommission finding, I think it is important tas a follow-up verification (which, of course

Comment [dpw5]: In recent PASRs, weliminated lines with a zero for simplicity.

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Amount

$0

$0

$0

$0

$0

$34,000,000

$0

$4,500,000

$12,000,000

$0

$0

$50,500,000

$7,750,000

Federal Government

Site Valuation

Other

Total Matching Resources

Minimum Match

Irrevocable Written Pledges

In-Kind Contributions (up to 50%)

Operating Endowment

Private Contributions

County Government

City Government

Source

Cash-on-Hand

Funds Already Expended on Project

Funding Model

Old Adjustments New

Funding

State funding 15,500,000$ -$ 15,500,000$Cash on hand - - -Private contributions 63,000,000 - 63,000,000

County government - - -City government 6,000,000 - 6,000,000Federal government 22,200,000 - 22,200,000

Available funding sources 106,700,000 - 106,700,000

Other (future investment income)1 11,650,000 (11,650,000) -Total funding sources 118,350,000$ (11,650,000)$ 106,700,000$

Project

Construction and soft costs2 62,633,000$ (30,095,954)$ 32,537,046$Exhibits 17,660,000 - 17,660,000

Fixtures/furnishings/equipment 2,790,000 - 2,790,000Pre-opening expenses (other) 32,761,000 - 32,761,000

Project cost approved by Commission 115,844,000 (30,095,954) 85,748,046

2004/2005 Operating def icit (other) 1,900,000 - 1,900,000Total project budget 117,744,000$ (30,095,954)$ 87,648,046$

1Due to the bond settlement transaction, the future investment income projection was never realized

2The original estimated construction cost of $62M shown above reflects the project cost used for past approvals however, the original

construction cost per the audit was $78M and was adjusted to reflect the impairment charge. The current value of the building per the

12/31/09 audit is $32M after the impairment charge of $42M.

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The Project is complete and was previously funded as indicated in the table above. However, two

significant events have since transpired affecting the value of the project. The first is that theconsortium of banks settled $47M bond debt in exchange for $24M held in investments (a secondposition lien on the facility was held as collateral; the Sponsor states that the lien has been released)The second event is that, appurtenant to GAAP, because the assets value is impaired, managementwrote down the carrying value of the facility from $78M to $32M at FYE09. Therefore, when analyzingthe funding for the project, Commission staff reviewed a completed project valued at $32M, withoutany debt, and calculated that the project is fully funded.

Project Need

Commission staff analyzed the Sponsors financial statements, including the following:

internally generated financial statements for year-to-date September 30, 2010 ("YTD10") audited financial statements for fiscal-years-ending December 31, 2009 and 2008 (FYE09

and "FYE08")

five-year pro forma

Statement of Financial Position Summary

YTD10 % Change FYE09 % Change FYE08

ASSETS:

Current Assets

Unrestricted 3,248,185$ 9.21% 2,974,206$ -61.47% 7,718,885$

Restricted -$ NC -$ NC -$

Long-Term Assets 32,639,131$ -16.09% 38,897,769$ -62.27% 103,096,322$

TOTAL ASSETS 35,887,316$ -14.29% 41,871,975$ -62.21% 110,815,207$

LIABILITIES:

Total Current Liabilities 618,721$ 0.58% 615,126$ -42.85% 1,076,256$

Total Long-Term Liabilities -$ -100.00% 27,000,000$ -41.30% 46,000,000$

TOTAL LIABILITIES 618,721$ -97.76% 27,615,126$ -41.34% 47,076,256$

NET ASSETS:

Unrestricted 33,357,286$ 147.29% 13,489,393$ -78.44% 62,563,238$

Temporarily Restricted 954,643$ 27.72% 747,456$ -35.33% 1,155,713$

Permanently Restricted 956,666$ 4683.33% 20,000$ 0.00% 20,000$

TOTAL NET ASSETS 35,268,595$ 147.38% 14,256,849$ -77.63% 63,738,951$

TOTAL LIABILITIES AND NET ASSETS 35,887,316$ -14.29% 41,871,975$ -62.21% 110,815,207$

Solvency:An organization is solvent when assets are greater than liabilities. The Sponsor is solvent because net assetsare positive (YTD10 total assets are $35.9M; total liabilities are $0.6M).

YTD10, the Sponsor had no debt; therefore, a viability ratio was not calculated.

Liquidity:Liquidity relates to availability of, access to or convertibility to cash. A test of liquidity is current ratio (currentassets divided by current liabilities), which indicates how many times over the entity can pay its currentliabilities with its current assets. (Note:Restricted current assets were not used to calculate the current ratiobecause they generally are not available to service current liabilities. Including restricted current assets in the

Comment [dpw6]: Im assuming that th

narrative follows the table to maintain paginits possible to have the narrative precede theitll flow a little better (but not a big deal)

Comment [dpw7]: Capitalize defined te

Comment [dpw8]: Id spell out (even thlikely that most readers know this)

Comment [dpw9]: I prefer to standardizacronyms to be FY## or FY#### for conacross all projects, but no big deal. I do thin

this definition of the timeframe included in treally valuable.

Comment [dpw10]: Covering what peri

Comment [dpw11]: I have not reviewednumbers; I trust CB/TC more than my eye owill, however, continue to review these sectigeneral flow and continuity.

Comment [dpw12]: Since current liabildoes not contain the current portion of long-debt (as in the past), this must simply be Acc

Payable. Is this worth noting for clarity, or athinking too much?

Comment [dpw13]: Since there are no rcurrent assets, Id either remove this Note orit to a more general instructional are not

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calculation could have the effect of artificially inflating the current ratio.) A current ratio of greater than 1:1 is

considered acceptable.YTD10 % Change FYE09 % Change FYE08

Current Ratio 5.25 8.58% 4.84 -32.58% 7.17

The Sponsors YTD10 working capital is $2.7M). Days of cash-on-hand (an indication of how many days anorganization can pay expenses if its revenue stream ceases) at 22 is lower than the 30-day norm.

Leverage:Leverage is the degree to which a Sponsor is borrowing money. A measure of leverage is debt ratio (debtdivided by total assets).

YTD10, the Sponsor has no debt; therefore, a debt ratio is not calculated.

Change in Net Assets:Change in net assets examines changes over several years to see where an entity is headed.

Operating Change in Net Assets Summary

YTD10 % Change FYE09 % Change FYE08

Total Revenues (net of capital income raised) $ 5,000,030 17.17% $ 4,267,276 -45.19% $ 7,785,726

Total Expenses (net of capital expenses) $ 5,670,869 -30.48% $ 8,157,132 -22.94% $ 10,584,822OPERATING CHANGE IN NET ASSETS (pre-

depreciation and pre-realized/unrealized

gain/(loss) on investments) $ (670,839) -82.75% $ (3,889,856) 38.97% $ (2,799,096)

Impairment loss (FAS-144 adjustment) $ - -100.00% $ (42,200,000) NC $ -

Extraordinary income (debt settlement) $ 24,150,000 NC $ - NC $ -

Realized/Unrealized Gain/(Loss) onInvestments $ 26,517 -94.22% $ 458,825 P $ (2,447,546)

Depreciation $ (2,494,182) -35.23% $ (3,851,071) -11.24% $ (4,338,937)OPERATING CHANGE IN NET ASSETS

(post-depreciation and post-realized/unrealized gain/(loss) on $ 21,011,496 P $ (49,482,102) 416.21% $ (9,585,579)

Pro Forma Review:A pro forma review is a projection showing anticipated expenses and revenues for the period.

Deleted: sponsor

Comment [dpw14]: There is such a hugchange from FY09 to FY10 that it seems to wa brief synopsis of why / what this means); f

example, the +21M is a -$3M when you exclextraordinary income. This is better than in but do we want to say more about this?

Comment [dpw15]: Is the P in % Chaintentional or a typo?

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Operating Pro Forma Summary

Revised - 01/14/2011

FYE11 FYE12 FYE13 FYE14

Total Revenues (net of capital income raised) $ 4,811,900 $ 4,198,000 $ 4,271,000 $ 4,419,000

Total Expenses (net of capital expenses) $ (5,132,416) $ (4,192,589) $ (4,263,000) $ (4,335,000)

Pre-Depreciation Surplus/(Deficit) $ (320,516) $ 5,411 $ 8,000 $ 84,000

Depreciation $ (3,325,576) $ (3,325,576) $ (3,325,576) $ (3,325,576)

Post-Depreciation Surplus/(Deficit) $ (3,646,092) $ (3,320,165) $ (3,317,576) $ (3,241,576)Sp

onsor

In assessing the Freedom Centers sustainability, Commission staff reviewed the impact of several eventsthat occurred over the last several years, and which affect the Freedom Centers current financial position.Arguably, the most significant event was: The consortium of banks that previously held the debt for theFreedom Center has exchanged $47M in local bond debt for approximately $24M the Freedom Center was

holding in investments. The difference between the amount owed and the amount paid is shown asextraordinary revenue. This is a one-time gain and is not operating revenue. The net result of the bondsettlement is an extraordinary gain of approximately $24M in YTD10 and the elimination of interest expenseand bank fees going forward.

The Freedom Center is actively asking Congress to pass legislation whereby the Freedom Center would begifted to the Federal Government and the Federal Government would contribute $3M of operating revenuefor the continued operations. Per a review of one of the Sponsors projections federalization would result ina net operating surplus of approximately $1.5M, assuming their other fundraising activities meet the goalsspecified. However, due to the uncertainty of such legislation passing, Commission staff analyzed theFreedom Centers sustainability as if federalization will not occur and included for the Commissions reviewonly the Sponsors pro forma which does not assume federalization.

Also material to the Freedom Centers financial position is the adjustment of the carrying value of thebuilding on the FYE09 financial statement. The previous building balance of $78M in FYE08 was written

down to $32M in FYE 09 as a result of FAS 144, the GAAP pronouncement applicable to Accounting for theImpairment or Disposal of Long-LivedAssets.Additionally, the Freedom Center continues to operate at a deficit, as is evidenced by a pre-depreciation,pre-extraordinary gain operating deficit of ($670K) at YTD10, a pre-depreciation deficit of ($3.9M) at FYE09,and operating deficits in previous years. However, the Freedom Centers Executive Committee hasapproved a new budget and business plan for FYE 2011 and FYE 2012 whereby small pre-depreciationsurpluses are projected in the out years, although the pro forma indicatesa pre-depreciationdeficit of($320K) for FYE11. This business model, which forecasts how the Freedom Center might becomesustainable without federalization, relies on further operating cost cuts and maintaining elevated levels ofprivate support (as compared to FYE 09) in FYE 2011 and FYE 2012. Actual results of private supportincreased from 2009 to YTD10 by substantial margins, approximately 160% at YTD 10 (nine months ofactual activity) and this increased level of private support is projected to drop in 2011 and rise again in 2012to approximately the 2010 results. Also, projected total operating costs in 2012 are about half of actual totaloperating costs in FYE09.

Although the Commission staff is cautiously optimistic regarding the approved 2011 and 2012 budgets andcash flows from the Freedom Center Executive Committee, Commission staff has its reservations as towhether fundraising levels can continue to be maintained and operating costs reduced further. Noteworthyto the Commission staffs assessment regarding fundraising projections is the Board Support projection of

Deleted:

Comment [CB16]: LPS provided updateforma on 01/14/11: it does not includefederalization. These can be deleted.

Deleted: Footnote: According to the sponsor

Comment [dpw17]: Look out for this st/ word.

Deleted: , if legislation approving federais passed prior to September 30, 2011, $be remitted by the federal government toFreedom Center immediately. For purpothe pro forma, Commission staff reportedfederalization income on the accrual bas

Deleted: which

Deleted: has

Deleted: ve

Deleted:

Deleted: must be

Deleted: lobbying

Comment [dpw18]: Per fiscal year?

Deleted: S

Deleted: sponsor

Comment [dpw19]: Id probably elimin

Deleted: Federalizationederalization

Deleted: only

Deleted: sponsorponsors pro-forma

Deleted: account for

Deleted: FederalizationDeleted: , for the Commission review

Comment [dpw20]: What is the impact

Comment [dpw21]: Do we know what

Deleted: loss

Deleted: , and the Sponsor-prepared

Deleted:

Comment [dpw22]: For clarity, Id state

Deleted: s exceeding ($1.8M) for the ou

Deleted:

Deleted: indicates orecasts how the

Deleted:

Deleted: balances

Deleted:

Comment [dpw23]: It seems incongrue

Deleted: iffundraising levels can cont

Deleted:

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Proportion of Revenue

Revenue Category FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 EstPrivate Support 21% 62% 49% 71% 67% 69%

Government 22% 15% 29% 4% 7% 6%Earned 57% 23% 20% 23% 23% 23%Other 0% 0% 1% 2% 3% 3%

Total 100% 100% 100% 100% 100% 100%

Trends in Operating Results($ Thousands) FYE09 YTD10 2011 Est 2012 Est 2013 Est 2014 Est

Operating Revenues

Private SupportBoard Support 750.0 880.0 900.0 950.0Individuals 303.0 305.0 308.0 311.0

Corporations 625.0 705.0 720.0 730.0Trust/Foundations/Charities 650.0 948.0 963.0 973.0MLK 38.9 20.0 20.0 125.0

IFCA, net 150.0Total Private Support 1,159.3 3,083.8 2,366.9 3,008.0 2,911.0 3,089.0Year-over-year change 166% -23% 27% -3% 6%

Government

Department of Education 275.0 50.0 200.0 150.0OCFC 850.0 0.0

City of Cincinnati 300.0 100.0 100.0 100.0Total Government 1,182.4 744.4 1,425.0 150.0 300.0 250.0Year-over-year change -37% 91% -89% 100% -17%

Earned IncomeAdmissions 595.0 600.0 619.0 631.0Facility Rental 190.0 200.0 198.0 202.0

Retail 140.0 140.0 146.0 149.0Membership 40.0 40.0 42.0 43.0Caf 15.0 20.0 15.0 15.0

Total Earned Income 3,107.9 1,171.9 980.0 1,000.0 1,020.0 1,040.0Year-over-year change -62% -16% 2% 2% 2%

Other Income 70.0 100.0 115.0 130.0Year-over-year change NC NC 43% 15% 13%

Total Revenues 5,449.7 5,000.0 4,841.9 4,258.0 4,346.0 4,509.0

Year-over-year change -8% -3% -12% 2% 4%

Expenses

Total Personnel Costs 4,078.6 2,835.4 2,453.2 2,085.2 2,127.0 2,170.0Total Non-personnel Costs 4,078.6 2,835.4 2,709.2 2,167.4 2,211.0 2,255.0

Tota l Expenses 8,157.1 5 ,670.9 5,162.4 4 ,252.6 4,338 .0 4,425 .0

Year-over-year change -30% -9% -18% 2% 2%

NET SURPLUS/(DEFICI T) (2,707.4) (670.8) ( 320.5) 5.4 8.0 84.0

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

Revenue ($000)

Total Earned Income

Total Government

Total Private Support

0.0

1,000.0

2,000.0

3,000.0

4,000.0

5,000.0

6,000.0

7,000.0

8,000.0

9,000.0

Expenses ($000)

Total Non-personnelCosts

Total Personnel Costs

0%

20%

40%

60%

80%

FYE09 YTD10 2011Est

2012Est

2013Est

2014Est

Proportion of Revenue

Private Support

Government

Earned

Other

In reviewing the projected cash flow, Commission staff notes that projected operating cash outflows aresignificantly less than recent actual operating costs shown in the prior year audit and the YTD financialstatements. The projected decreases are due to cuts in expenses for fundraising and professional lobbying.In response to inquiries as to how projected fundraising cash inflows will be achieved when cuttingfundraising expenses, the Sponsor responded that they hired a new director of development, which shouldenable the Freedom Center to cut fundraising costs while achieving their fundraising goals. The Sponsorsresponse regarding the impact of cutting professional lobbying expenditures before federalization is securedwas to clarify that the lobbyist will not stop working, but will be working pro bono.

In order to achieve the positive cash balances anticipated in the projected cash flow, fundraising cashinflows must continue to be realized at a level which has only recently been accomplished, as indicated bythe year to date financials, but which is substantially higher than years past. In evaluating the FreedomCenters ability to achieve the fundraising cash inflow, Commission staff notes the Freedom Center and itsnew director of development must contend with a challenging environment for fundraising, including anuncertain economy, possible donor fatigue, and the effect the write down of the building may have onpotential donor enthusiasm. Also, the fundraising outlook may be influenced positively by certain factors

Comment [dpw35]: planned cuts?

Deleted: expenses

Deleted: sponsor

Comment [dpw36]: There must be somfundraising metrics out there that must be hesubstantiating or refuting their claim.

Deleted: :

Comment [dpw37]: , reducing thefundraising expenses by

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Page 6: [1] Deleted Chris Bruner 1/ 18/ 2011 8:02:00 AM



, if legislation approving federalization is passed prior to September 30, 2011, $3M will be remitted by the federal government to the Freedom Centerimmediately. For purposes of the pro forma, Commission staff reported the federalization income on the accrual basis and recognized only three-twelfths of the projected remittance in FYE11.

Page 6: [3] Comment [dpw19] davew 1/ 20/2011 11:20:00 AM

Id probably eliminate the one of b/c its explained in the next sentence.Page 6: [4] Deleted Chris Bruner 1/ 19/ 2011 1:03:00 PM

Federalization

Page 6: [4] Deleted Chris Bruner 1/ 19/ 2011 1:03:00 PM

Federalization


sponsor


sponsor


What is the impact moving forward? Were now in discussion of forecasting, so it seems relevant.


Do we know what the FY-end projection is?

Page 6: [8] Deleted tonyc 1/ 18/ 2011 9:11:00 AM

, and the Sponsor-prepared





Page 6: [8] Deleted tonyc 1/ 18/ 2011 9:11:00 AM, and the Sponsor-prepared


For clarity, Id state the FY11 deficit first, then explain the projected surpluses coming in the out years.


s exceeding ($1.8M) for the out years.

Page 6: [11] Deleted Kathy Fox 1/ 19/ 2011 6:38:00 PM

indicates


indicates


It seems incongruent to say were cautiously optimistic about the budgets, but have reservations about the two key

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if


if


Federalization


Federalization


FederalizationPage 9: [15] Deleted davew 1/ 20/ 2011 12:12:00 PM

Page 9: [15] Deleted davew 1/ 20/ 2011 12:12:00 PM


Commission staff calculated


Commission staff calculated


October


October




Page 9: [19] Comment [dpw39] davew 1/ 20/2011 12:10:00 PM

6.6M divided by 9 is 733K I think rounding to $1M is too broad


,000


,000

Page 9: [21] Comment [kf43] Kathy Fox 1/14/ 2011 7:14:00 PM

Discuss w/ KF rewriting this paragraph


CB/TC to redraft based upon new business plan CB to review 1/17/11.


it behooves the Commission to

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p


p


p


making these approvals under certain conditions


this seems strong: can we use the concept of mitigating risk instead of eliminating?


Proposed project approval for the release of the most recent appropriation of $850,000


,


,


,


,


,

Page 9: [29] Deleted tonyc 1/ 19/ 2011 12:42:00 PM

Commission staff also recommends the Commission require a business plan, approved by theFreedom Center board, with fallback arrangements in the event the Sponsor-prepared cashprojections prove infeasible[kf1][jd2].


Need to revisit in light of new information just received.


0


0

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